How Fintech Companies Help MSME Increase Customer Reach

With the world becoming digital, the industry that was greatly affected was micro, small and medium enterprises (MSME). The financial crisis led to several companies closing down and affecting the credit purchasing capacity of many MSMEs. The traditional methods had taken a back seat and digital solutions revolutionized the operations of such small businesses. With the increase in digital payment solutions, many FinTech companies came to the rescue to create seamless and user-friendly products, which not only improved internal operations, but led to better customer acquisition and service. FinTech companies have seen an exponential increase since 2016, which was due to the introduction of the most popular digital payment solution – Unified Payment Interface (UPI). As a result, customers’ buying behavior changed as cashless transactions became popular and resulted in the emergence of the payment technology (PayTech) industry.

The sector of micro, small and medium-sized enterprises (MSME) has emerged in recent times and plays a significant role in the Indian economy, as they greatly contribute to the growth and development of the nation. The MSME network includes approximately 6.33 million companies, which contribute 30% to the nominal gross domestic product (GDP) and 48% to exports. With such a strong impact on the economy, there was a strong need to digitize the sector to improve the efficiency and effectiveness of these businesses. FinTech companies have pioneered the introduction of effective financial products for MSME, which include the following – Market loans or peer-to-peer loans, which fill the financing gap for small businesses. Market loans require no security and make it easier during a financial crisis such as the COVID-19 pandemic. Another solution is Alternate Credit Scoring, which uses various digital platforms to understand consumer behavior for credit risk assessment and credit-eligible terms. It focuses on creating potential strength by combining data from the use of social media, payment history and other avenues. With the data collected, FinTech provides effective solutions to MSMEs to increase their customer engagement and build an ecosystem that meets the specific needs of each customer.

Digital payment solutions have been on the rise, which has increased the demand for various payment gateways such as UPI, QR Code and others. Payment gateway is a front-end technology platform that allows users to make direct payments on the seller’s website through credit and debit cards, digital wallets and other digital media. The sensitive card data is secured using data encryption methodology, which ensures secure transaction and reduction of fraud and errors. Payment gateways include the Point-of-Sale (PoS) machine or sweeper, which is an electronic device provided to the seller for use in their business. This enables customers to pay for their purchases online, through cards, UPI platforms and others. This service has resulted in the economy becoming cashless as the process is seamless, convenient, affordable and easy to use. PoS machines mean that the customer puts their card in the machine, enters the bill amount and authenticates the transaction with a PIN number.

FinTech platforms have ensured that high quality services are offered to MSME, at the most affordable cost. With very reasonable prices and available mobile devices ensure that companies carry out their business in a systematic and efficient process. Effective internal control reduces costs for the company, thus enabling companies to offer high quality services to their customers with a reasonable pricing strategy. FinTech companies are useful as Data Analytics offers solutions to easily access a company’s creditworthiness or assess collateral available for loans. In addition, artificial intelligence (AI) has emerged as an effective tool that makes application processes faster and smoother. In some scenarios, they help create customized products based on customer needs. Digital wallets or mobile wallets have also made it convenient for people to make cashless transactions. Wallets are useful for sending and receiving money directly to bank accounts, without the involvement of physical presence. Digital wallets have proven beneficial in uncertain times and created a strong network between companies and their customers.

Today, approximately 47% of MSMEs have incorporated digital tools for business processes, payments and online sales in India. Digitization has created a massive impact on the MSME sector, which has led to operational improvements ranging from increased profitability, operational efficiency, better customer service and higher customer engagement. FinTech companies act as a single window, supporting financial needs such as immediate short-term loans, low interest rates, simplified processes and low transaction costs. In addition, the goods and services tax (GST) has been useful in encouraging MSMEs to reach out to FinTech startups, and thus offer tax registration solutions.

India is moving towards a cashless economy, which is largely supported by a strong digital infrastructure and increasing usage rate for FinTech solutions by MSME. With such high digital conversion rates, the economy has strengthened over time and has effectively combated the financial crisis that arose during the COVID-19 pandemic and nationwide restrictions. The PayTech industry has revolutionized the way transactions are performed. Technology development has played a key role in the way companies operate in today’s digital times. With low transaction costs, FinTech works effectively with MSMEs to provide the best services to their customers and create a seamless customer experience for years to come.